Occam Industrial Machines issued 105,000 zero coupon bonds 5 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5 percent. The bonds have a par value of $2,000 and semiannual compounding. If the company has a $74.6 million market value of equity, what weight should it use for debt when calculating the cost of capital?
Occam Industrial Machines issued 105,000 zero coupon bonds 5 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5 percent. The bonds have a par value of $2,000 and semiannual compounding. If the company has a $74.6 million market value of equity, what weight should it use for debt when calculating the cost of capital?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Problem 12-18 Calculating Capital Structure Weights [LO 3]
Occam Industrial Machines issued 105,000 zero coupon bonds 5 years ago. The
bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent.
Interest rates have recently decreased, and the bonds now have a yield to maturity of
5 percent. The bonds have a par value of $2,000 and semiannual compounding. If
the company has a $74.6 million market value of equity, what weight should it use for
debt when calculating the cost of capital?
Note: Do not round intermediate calculations and round your answer to 4 decimal
places, e.g., .1616.
Weight of debt](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F483c3d17-1621-47af-bfd2-86acecf64938%2F464edb67-7cba-4760-aee1-415565cb8133%2F7eg18ic_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 12-18 Calculating Capital Structure Weights [LO 3]
Occam Industrial Machines issued 105,000 zero coupon bonds 5 years ago. The
bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent.
Interest rates have recently decreased, and the bonds now have a yield to maturity of
5 percent. The bonds have a par value of $2,000 and semiannual compounding. If
the company has a $74.6 million market value of equity, what weight should it use for
debt when calculating the cost of capital?
Note: Do not round intermediate calculations and round your answer to 4 decimal
places, e.g., .1616.
Weight of debt
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